Strong First Quarter Heralds Signs of Recovery

By: Jennifer Saba After a strong Q1, accompanied by growth in April, it seems that the newspaper industry is finally on the receiving end of a recovery. Increased gains in advertising revenues coupled with bright employment numbers -- the last true holdout -- buoyed many companies this year. So far, so good. And according to Miles Groves, president of MG Strategic Research, he expects that Q2 will keep humming along as well.

"Right now the revenues we've been tracking have been above 5% growth and my expenditure is about 5%," he said about Q2. A quick turnaround in the recruitment category experienced in Q1 -- which Groves didn't anticipate until Q2 -- will continue to gain steam adding to the bottom line.

There are some weak areas that are pulling against growth and dragging slightly on any gains made in help-wanted revenues. Retail advertising continues to shrink -- it's a gradual problem, but one Groves thinks that newspapers need to start addressing now. "There are some real structural changes occurring in that segment," he said. "It's not going to be a second quarter problem, but it was weaker this year than it was last year. If you didn't have structural changes in retail we would have had a stronger quarter."

Expect the real estate and automotive categories to start eroding. New home starts are down and interest rates are creeping up; these factors are cooling the real estate market. Rising gas prices are also taking a toll on dealers and individual sellers trying to sell automobiles. "The fact is whenever energy prices go up it drives through the economy, and it will have an upward push in prices which may lead to Fed action. I don't see that as a second quarter story, that's maybe a fourth quarter story," he said.

Circulation continues to be a thorn. "I think the last six months were off far more than average for a lot of reasons. There was a loss of bad circulation due to changes in telemarketing," Groves said. "But Boston had positive growth, as did Philadelphia, as well as Houston. I believe this is a good year for a wake-up call. Newspapers have to step back and make some changes and I think they are."

The 5% growth in advertising that Grove calculated for Q1 for the industry is based on information from public companies. The Newspaper Association of America pins the Q1 number at 3%. That's a big difference, Grove explains, but says that the NAA takes into account private and independently owned newspapers that are obviously not seeing quite the growth that the larger players are seeing. "The fact is it's over 3%. There's nothing wrong with 3%. It shows that directionally we're all on the same page," he said.